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Compound Interest Learning Activity

By May 19, 2008

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When you deposit your money into a savings account, the "magic" of compound interest helps it grow. It's a key financial concept, however, it's hard to explain to kids. That's where a learning activity can be a handy tool to illustrate the concept in a way kids understand.

Frugal Dad came up with a terrific exercise to teach his daughter how compound interest works. He had his daughter deposit one penny each day at "The Bank of Dad." Every other day, he added a penny to her bank. At the end of the week, when she opened the bank, she saw not seven, but eleven pennies. She saw compound interest at work and was encouraged to save her money.

Clearly she got the concept, as her next comment was: “Dad, what would happen if you deposited a hundred million pennies in the bank?”

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